Gokaldas Exports Limited (GOKEX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Gokaldas Exports Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Binay Sarda from Christensen IR. Thank you, and over to you, sir.

Thank you, Lizan. Good morning to all the participants on this call. Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with our business risks that could cause future results performance or achievement to differ significantly from what is expressed or implied by such forward-looking statements. Please note that we have mailed the presentation and the same are available on the company's website as well as the results too. In case if you have not received the same, you can write to us, and we'll be happy to send the same over to you. To take us through the results and answer your questions today, we have the top management of Gokaldas Exports Limited, represented by Mr. Sivaramakrishnan Ganapathi, Managing Director and Chief Executive Officer; and Mr. Sathyamurthy, Chief Financial Officer. We'll start the call with a brief overview of the quarter gone past and then conduct Q&A session. With that said, I'll now hand over the call to Mr. Siva. Over to you, sir.

Thank you. Good morning, everyone. We, at Gokaldas Exports, are focused on being a leading manufacturer, sought after by top global apparel brand for its product capability, quality and consistency with a strong commitment to sustainability initiatives while delivering year-on-year growth profitably. We have been working relentlessly to achieve this goal, and we are making good progress quarter after quarter. Our progress and resolve was severely hit by COVID-19 in FY '21 when lockdowns post store closures in most markets and imports factory shutdowns in producing countries, resulting in a volatile order flow and disrupted supply chain, claiming a toll on the financial health of most companies across industry. For a global lifestyle and fashion apparel manufacturers, Q3 FY '21 was one of the most testing quarters from a market standpoint. Almost all apparel brands are saddled with excess inventory from spring 2020 on account of store closures due to lockdowns in major markets during March to June 2020. Consequently, demand for spring 2021 garments produced in Q3 FY '21 was muted. Despite this, with all the efforts that we took to diversify our customer base and engage with our customers, we contained our export sales drop to just 11% over Q3 of previous year. The company also consciously reduced its exposure to Indian retail customers to minimize credit risk. Domestic business -- our domestic retail business, as you are aware, has fallen quite sharply, and it's only now somewhat picking up. The domestic business revenue for Q3 FY '21 was brought down by us consciously by about 35% as a consequence of our internal decision. We, of course, chose to forego the revenue and the corresponding EBITDA to minimize the risk. The incremental revenue could have yielded a strong incremental EBITDA as not all fixed costs would come into play to deliver that. Having said that, we chose lower risk option. I'm also -- I'm happy to report that your company reported a total income of INR 271 crores in Q2 FY -- in Q3 FY '21 as against INR 328.5 crores in the previous year, adjusted for MEIS loss, coming in at an 82% in total of the last year's pre-COVID level. Our EBITDA was INR 26.8 crores, a margin of 9.9%. If we compare our margin with last Q3, after adjusting it for ad-hoc RoSCTL, we are ahead of the margin despite a drop in revenue and slight underutilization of capacity. This shows the capability of the company to balance its business and manage its volume volatility very efficiently and yes, deliver EBITDA margins. We contained our net debt to INR 150 crores as well. We have ensured very high efficiency in our manufacturing process, controlled our costs well, contained the working capital deployed and improved connect with our customers. All of these enabled us to deliver a strong EBITDA margin of 9.9% despite a drop in revenue. With this, we believe that we have put COVID behind us by and large. We have strong order book for the quarters ahead. We hope to be back to pre-COVID levels of business volume from Q4 onwards. With vaccination gaining momentum in all countries, we are anticipating a recovery of the market soon after, and the most recent second wave of COVID-19 runs through in most major markets. We are well prepared to tackle the future. We are strong. We are resilient and we believe that we will be able to come up very strongly with our robust order books going forward. Thank you. I will pause here and we'll take up questions from the investors.

[Operator Instructions] The first question is from the line of Sudhir Bheda from Right Time Consultancy Services.

Sir, we are very satisfied with the performance in view of current situation under the able management of Mr. Siva, Sathyamurthy ji and Matthew sir. Sir, my questions are, as you have said in your presentation that customers are saddled with the excess inventory because of lockdown. So now whether orders are falling in, in the Q4? And how next year is looking like in terms of growth? Because we have seen the demand from the customers in terms of home furnishing textiles, that are increasing, but garments demands are not increasing. So whether you are banking on the business that will shift from other countries like China to India or there will be a real jump in the demand? That is number one. And number two is how going forward we can still improve the margin because margin almost to the double-digit is -- sounds very good for the Q3. So how it will pan out in the coming time?

Okay. So I'll answer your questions in the order that you asked. So first, I'll go for the demand question. The demand for lifestyle governments that we are producing is now robust, especially as countries are coming out of COVID-related pandemic. Even though European market is slightly impacted by COVID, the online sales at -- to end customers is growing in a robust manner and are offsetting some of the retail store closures related slowdowns. And U.S. market is growing very strong in terms of demand. So going forward, our order book seems to be in a good position, in a strong position. We are anticipating that as we continue to deliver consistently to our customers at very high quality, we will be able to garner additional business from our customers. So I'm happy to report that order books going forward is strong, and we don't anticipate any capacity-related constraints or any demand-related constraints at this moment for the year ahead as well as quarter 4. As far as your question on EBITDA is concerned, I can report that we are doing everything in our ability to continuously improving our manufacturing efficiency, our internal processes, so that we are able to produce more and more at lower costs. Higher capacity utilization in our factories also will yield an incrementally higher EBITDA for the periods ahead. So we are hopeful that if the other things being equal, we should be able to perform better in terms of EBITDA margin in the year ahead.

So sir, can we expect a reasonable 20% kind of growth from the '19 level because in '20 level, there is no point -- '21 level, there is no point in talking because 2 quarters have gone. So from 2019/'20 level, can we expect 20% kind of growth in terms of turnover going forward in FY '22?

So I don't want to promise a particular number, but I can say that it will be a very -- it will be a strong growth over FY '20 level, yes.

The next question is from the line of [ Zaki Nassar from Nassar Industries. ]

Congrats on a very reasonable performance in a very depressing kind of international scenario. Mr. Siva, I mean, see, looking at the third quarter gone by and looking forward to the fourth quarter in terms of offtake in the international market, what feel do you get out of it, sir? Number two is, how has the rise in cotton prices affected us if at all in any way? And what do you feel on the cotton prices going forward, sir, because I believe there's been a sharp jump in the last quarter?

So I did speak about the demand. And as I said, for a player of repute like us, we can source demand. And when we see that -- now the -- by and large, the COVID effects are wearing out in most markets. And hopefully, it should be completely out or merely completely out another 3 to 4 months. We feel very confident looking at our order pipeline and the order book that demand will be robust going forward. As far as the raw material costs are concerned, you're right, the cotton yarn prices are going up. And that puts the pressure on the raw material costs. However, for us, it's largely passthrough. And when we work our contracts with our customers, we tend to factor some of these in. So far, we have managed to offset the cost increases to a large extent. We hope to keep it that way. If any pressure comes, then we will have to appropriately deal with it with our suppliers as well as with our customers as the case may be.

And as you have indicated in your previous answer that you are expecting a decent growth over March '20. The orders which you are booking right now indicate that or the general improvement in scenario. The U.K. and U.S. are still not too good, I guess, sir.

Correct. Correct. So the -- I'm drawing my inference from the general market scenario as well as the orders that -- order inquiries that are coming to us.

[Operator Instructions] The next question is from the line of [ Jay Daniel from Entropy Advisors. ]

Sir, just as the previous participant had alluded to this cotton value chain getting expenses and freight having seen sharper increases, the company operates on fixed rate contracts with very thin margins. So how does it manage this volatile raw material base?

Okay. So we -- when we book an order, we tend to factor in all the raw material costs, et cetera, and then price our products. So when the raw material prices do go up, then we tend to either negotiate hard with our suppliers before we give a final price offering to our customers or mark up the price of the product to accommodate the higher price of raw materials. So it's a combination of both of these, which is at place. Clearly, we would like to protect our margins. We are very conscious of making sure that our profitability is protected at all costs. And we negotiate with all parties concern to ensure that we are able to deliver to the margin targets that we have. As far as freight costs are concerned, incoming freight, while it gets billed to us, our responsibility ends by delivering the products to our customers at ports in India. So the outgrowing freight to the western markets are largely at our customers' costs, so we don't tend to bear that.

Okay. And this commentary provided by most cotton yarn companies is that one will have to get used to higher cotton yarn prices, plus Chinese cotton from a specific region in China has been banned. How will this all play out vis-à-vis China's competitiveness in this space and competitiveness of cotton garments to those manufactured from man-made fibers?

Yes. So price of raw material will eventually influence the blend of different fibers in the end garments. So if cotton prices continue to remain high, then obviously, it may have an impact on how much it is blended with manmade fibers, et cetera. So all that will play over a period of time. These are all slow and gentle movements, which will happen, and these calls are taken by large customers by taking several long-term trends into play. The fact that the western markets are also going after China means that a lot more orders are coming off China into other countries. So that also presents an opportunity for operators like us, albeit the raw material cost still has to be absorbed. But the point I'm making is that when there is a market opportunity, then the raw material cost eventually, at some stage, will have to be priced in by all parties concerned in the value chain.

Okay. Sir, 1 more question. Actually, in the last call, management had held out that the third quarter would be better than the second quarter with improving utilization and company getting into a seasonally better quarter. But this is -- I mean, the performance of the third quarter has come in as a bit of a surprise because reasons given out excess inventory in the pipeline and labor availability issues would have been known at that time. So we were expecting a better performance in the third quarter.

So I have always maintained that, we anticipate turnaround from the fourth quarter of this year, and that is what we are seeing as to coming to pre-COVID levels. The -- usually, third quarter is good for the industry from a margin standpoint as we produce more and more of spring- and summer-related garments, for which India is known for and India is strong at. The inventory problem was always there, and we have addressed it to a large extent by taking appropriate action. But then simply going after revenue by taking on more incremental revenue with the credit risk by going after Indian customers was also something which we consciously avoided. But the consistent stand of the company has been that we anticipate a pre-COVID level performance from fourth quarter onwards. And I think we still maintain that.

The next question is from the line of Monish Singh Segal, an investor.

Congratulations on a resilient result. Just wanted to ask 2 questions. One, fairly short-term kinds and second, a bit long-term. Last March quarter, I think, was one of the most difficult in all sense where the incentives were removed and COVID had hitting and some sales were delayed. So if you just compare, say, to previous March quarter, I just wanted to know, would you see a large amount of growth as well as increase in EBITDA? Secondly, where do you want to take the company, say, in 2025? What are the plans and related CapEx that you would want to do and when? I mean, I don't want the exact dates, but timeline, but directionally, I would want to know.

Okay. So the loss of MEIS was there from March 2019 onwards itself, even though it came retrospectively in January 2020. So when you compare last March quarter versus this March quarter, the incentive regime more or less remains the same. Though it's the government's call, how do they play the incentive regime going forward under RoDTEP scheme. As far as revenue and profitability goes for the current Q4, we expect that we will be slightly ahead of the last Q4 levels and continue our momentum in the quarters ahead. So that's the plan on which we are working. And so far, we are trending on the plan as well. So for the years ahead, and you mentioned for 2 to 3 years ahead starting next year, we anticipate a reasonably robust growth. For FY '22, '23, '24, I would anticipate going at a generally fair clip. After a spurt in FY '22, we will probably grow -- internally, at least, we are targeting a growth of 15% year-on-year going forward to FY '23 and FY '24. So we are hoping that we will maintain that trajectory. We will do everything in our ability to accelerate the growth momentum, while not losing sight of the EBITDA margin as well. We would like to keep our EBITDA margin at double-digit levels at all costs going forward, and we will work towards it.

What about the related CapEx, sir? I mean, when would you have to do the CapEx to meet that growth?

We have plans of investing around INR 120 crores in the next 2 to 3 years' time. For that, we anticipate -- we have a term loan requirement of INR 50 crores, for which we have already aligned. We have a line of credit established already. Balance will come out of the internal accruals.

The next question is from the line of [ Nitin Agarwal from Shreya Investment. ]

And I'd like to congratulate you on the good set of numbers in these challenging times. I have heard your comments on Q3 being -- demand being low because of carryover inventory and you cutting back on the [indiscernible] customers. Could you just give us a brief understanding and flavor of how and which regions you were seeing real growth in demand going forward? And how this whole China Plus One will play out for India in specific in comparison to Bangladesh and Vietnam?

Okay. So -- see, going forward, I think demand will grow in every region, every geography. We continue to see U.S. as a country which has got a good demand for apparel products, particularly from India, while Europe will continue to be served by Bangladesh, thanks to FDA that Bangladesh enjoys to Europe. But across all markets, we will see growth going forward in terms of consumption. And U.S. has not slowed down as much, and we will anticipate that same-store sales will start picking up in the calendar 2021 going forward. So that should take care from a demand standpoint. As far as China Plus One is concerned, there is a continued pressure on China even after the regime change in the U.S. and the moves by the government of United States to restrict offtake of cotton from Zhejiang Province, which came into effect very recently in January, will put further pressure on cotton-related products from China or export of cotton-related products from China. So automatically, supply chains will get somewhat realigned, and China will continue to focus more and more on manmade fiber-based exports. With increasing costs in China and somewhat increasing costs in Vietnam, nowadays, we're seeing that Cambodia also is growing in terms of its manufacturing throughput and exports. But increasingly, buyers will have to come to markets -- to producing countries like India, Indonesia for growth, for their supply chain requirements. And that augurs well for operators like us. So we will slowly but surely stand to gain with the cotton value chain very much being part of India. And as India slowly ramps up its manmade fiber value chain, which probably will take several years, then there will be additional growth for exports from the country. Though one need not count all those before they come into play, at least even the cotton-based value chain itself can be in the reasonable growth for the country, taking on additional volumes, which are coming off of China.

So Siva, the demand that you are seeing is in lower-value products and lower batch or style sizes? Or are you seeing demand in mid-level products and higher mid-size back sizes?

Even now, if you look at the demand, it's more for lower-value products. So garments, which are priced at $20, $25 in the markets or under are selling well. And that's why you'll find casuals going well, whereas products like a suit or a blazer is just not performing at all. So as a manufacturer who has got flexibility to manufacture any product, we have pivoted to what the customers want of us. Eventually, the market for other products, fashion products or high-value garments will catch up. But as of now, as we see most of the demand catch up has happened from lower-value products as far as end consumers are concerned. And it will stay that way for some time to come a few more quarters before an all-round growth of all products will start.

The next question is from the line of Jayant from Care PMS.

I was just looking at our 2019 and 2020 annual financials. We generate normally profit of around INR 25 crores to INR 30 crores at net level. And if you add to that, around INR 50 crores is depreciation. So I think part of the depreciation must be required for replacing the machines actually. So I want to understand for maintaining 15% to 20% growth in future, what kind of CapEx will be required and how that cash will be generated?

See, our CapEx plan for the next 2 years is around INR 120 crores. So we have -- we will have enough internal accruals to take care up to 75 -- INR 70 crores to INR 100 crores. We will draw term loan to the extent of INR 50 crores.

So that INR 120 crores CapEx, how much capacity will be added?

I mean we are -- the additional capacity will be at least around 35% to 40%.

So with INR 120 crore, we can add 35% to 40% to the capacity?

Yes.

Okay. Okay. Okay. Now what is the replacement cost every year that we spend?

Around INR 25 crores year-on-year, we have been investing consistently for the last 3 years.

Yes. That is booked under fixed assets, correct?

Correct.

Okay. Okay. Okay. Sir, you said that we consciously reduced the exposure to Indian customers. So can you name few Indian customers whom we supply?

We would avoid naming anybody in this call, but we have been working with almost all the big brands. As a conscious choice, we said till the markets turn around, and this is nothing to -- nothing against any 1 customer. But since many of them were financially challenged, we wanted to avoid any further exposure to Indian retail till we get a comfort that Indian retail market has come back strongly.

Sir, are we witnessing any payment delay from the Indian customers?

So there has been some delay for the goods that we supplied pre-COVID, but we've all agreed on certain payment plans with them, and they have been tracking to those payment plans. Fresh supplies we have anyway stocked. So we don't have any further problems.

Sir, this post-COVID, I think the work from home is going to be the new normal in most of the service industry part. So are we planning any change in product mix?

Sure. So we will go based on the project -- product mix changes that our customers dictate to us. And in the wovens, while we are finding a lot more lower value garments, which we are eminently capable of producing, we are doing that. And as and when the market picks up for other garments, which have higher value, we will do that. We also produce a lot of outerwear, which are seasonally required for cold weather, which anyway will have its set of demand. We also produce industrial there, which will have its demand based on industrial requirements. All of those will also be sustained, I believe. So from a product mix standpoint, we don't anticipate too much of a change, except that our casual wear will slightly increase compared to formal wear or high fashion wear.

Sir, are we witnessing any shift from Chinese...

Sorry to interrupt, sir. We require that you return to the question queue.

Yes. Okay, okay.

The next question is from the line of [ Pratik ] from Nippon Life Insurance.

Sir, I just wanted to check your interest cost as a percentage of your net debt seems very high. On INR 150 crores of net debt, we had, for the first 9 months, INR 27 crores of interest cost. So can you help me understand that? That's question #1. Second is on capacity utilization. What are we currently at? And just an extension of this, let's assume you go back to the peak capacity utilization, depending on seasonality for the full year, what is the sustainable EBITDA margins this business is capable of generating? And lastly, sir, on the RoDTEP scheme, if you can help us understand if there is any communication from the government? And how does it impact your financials? So these 3 questions.

Our interest cost includes INR 7.5 crores, which is pertaining to Ind AS reclass. So our real interest cost is only INR 20 crores for the 9 months this year as against last year, which is around INR 23 crores. Hope this clarifies because this is because of the Ind AS treatment, part of the cost is being classified under interest, and that is the reason you see INR 27 crores under interest cost.

Sir, but about INR 20 crores on INR 150 crores is also high, right? Is it...

This is mainly because of the gross -- on the gross borrowings, the interest is reflected here. The interest income is reflected separately.

Okay. Okay. Got it.

Okay. To answer your further questions, this is at peak capacity utilization, what should be the EBITDA margin. So if we assume current conditions of incentives, et cetera, et cetera, I would expect anywhere to go up by a further 1.5% or maybe even 2% from current level. That would be a medium-term kind of EBITDA levels that we will operate, assuming the incentive levels stay at current levels. You also asked me the question on RoDTEP, which is proposed going forward. At this moment, we don't have a clarity on what is the proposed incentive for the industry. While the industry feels that the embedded taxes in the system is reasonably high, and it has to be maintained at current level, we really await guidance from the government as to what RoDTEP levels will be sanctioned to the industry going forward. So to that extent, we are hoping that at the budget or maybe shortly after the budget we will have clarity on how -- what are the levels of incentives that the government would provide for the industry going forward. Being an export-oriented industry and a manpower-intensive industry, we have been urging the government to ensure that the incentive levels are not disturbed going forward. But then government will have to balance its own financials and come up with an incentive scheme for us. If we have a clarity on the incentive scheme, going forward, we will be able to align our business to that incentive scheme and in a few quarters, try to offset the additional loss coming -- loss or if there is a gain, whatever, coming from the incentive scheme. But I am not hopeful that the RoDTEP will be higher than RoSCTL. If at all, it may go a bit lower. To what extent it will go lower is unknown at the moment. We will have to wait for maybe a month at most to get clarity on this.

Got it. Sir, just sorry, 1 question and a clarification. Pardon my ignorance, I'm not aware of this. When you say current level incentives will help you reach on a steady state, 1.5% margins more than what we are reporting today, what -- how do you define these incentives? Are there any incentives because MEIS is withdrawn? So I'm not aware, are you -- yes.

So there are 2 incentives. We have what is called RoSCTL and we have duty drawback. Both of them put together amount to about 5% as of now.

Sure. So when you -- yes.

So all of this will get rolled into what is called RoDTEP going forward. And that's the incentive amount which is unclear at the moment because rates have not been notified as yet.

So your guidance of margin expansion includes -- assumes this 5% benefit, right?

That is correct. That is correct.

And have you booked...

As I said, we work -- we as well as our customers and everybody works with a transparent incentive regime. So even our customers know that this is the incentives we are getting. If incentives change, then it will take a few quarters to realign to the new set of incentives as we book orders in advance. So we may not be able to price all those things in right away when an incentive is announced. But going forward, we will try our best to price it and absorb the incentives in our contracts but pending which we will have to absorb the incentive shock, if any.

And sir, in quarter 3, did you book any incentives or this margin is excluding the duty drawback?

We booked incentives, the usual level of incentives that we have booked.

But duty drawback was withdrawn, right? It was just INR 2 crores a month, if I'm not wrong. I'm not sure.

No, no, no. Duty drawback is very much there as well as RoSCTL is there. MEIS was withdrawn from March 2019 onward. But we did get all these incentives, which have been the norm for quite some time.

And lastly, your thoughts on your net debt, is it peaked out because the way you talked about your CapEx for the medium-term plus maintenance and if I were to assume some numbers, looks like your net debt has almost peaked out. From hereon, either it would be flat or go down. Is that a correct understanding, sir?

So based on business volumes, our net debt will go up. We are trying to contain our working capital base to current levels. So that we will maintain or try to taper it down, we will try to keep it between 75 days or 80 days thereabout. But net debt will grow if the business grows.

The current net debt, about INR 150 crores, includes about INR 52 crores, which is post shipment credit, which is bill discounting. We anticipate that will go up depending upon our -- the delivery plans. So as far as March this quarter, we may end up around INR 90 crores. So to that extent, the net debt will go up depending upon the volume increase. But that is -- otherwise, if you eliminate post shipment credit, today, I'm at sub INR 100 crores in the net debt levels.

Okay. So that is a function of volumes. Got it. So it's working capital debt. Okay. Got it, sir. Got it.

The next question is from the line of Chintan Sheth from Sameeksha Capital.

I heard your commentaries on your vision for next 2, 3 years, both on the volume, revenue side as well as on the margin side, the investments you are planning as well. So if I look at your return on capital employed for FY '20 being at sub 10%, 11%, what are the targeted return on assets you are really looking at for the business over the medium term?

Sir, your voice was somewhat muffled. If I can paraphrase what you said, are you asking what is the return on capital employed in the years ahead? Is that the question?

Correct. Correct. Yes. So based on your expectation on revenue growth, your CapEx requirements, your working capital conserve measures as well as your targeted EBITDA...

Sorry to interrupt, Mr. Sheth. Sir, we're not able to hear you clearly.

So let me try to answer you regardless. So if the question is on what is the return on capital employed going forward, internally, we are working to reach ROCE of about 18% in 2 to 3 years, and we hope that we should be able to achieve that.

We'll move on to the next question. That is from the line of Vaibhav Gogate from Ashmore.

Sir, how big is the domestic business as a percentage of revenues? And what is the outlook for the upcoming quarters?

So we have 2 components of domestic business. One is the domestic business for -- of our international customers. So if I'm, say, supplying to H&M, I'm also supplying to H&M India or Gap India and so on and so forth, or say an Adidas India or a Puma India. And I'm -- I used to supply to Indian retailers as well. So my domestic business clubs both of them. And both put together, our domestic sales for third quarter was...

18%.

18% of the total revenue.

So how should we expect this 18% piece to shape up in upcoming quarters? Is there any backlog of inventories from previous year?

No. There is no backlog of inventory and all that. Most likely, these levels will continue. Indian market typically tends to grow faster than global market. And the domestic sales may go up a little bit as a percentage of revenue, but the focus is still largely on exports. And from our standpoint, we will largely tend to drive exports. Even within this 18%, a larger proportion of almost 10%, 12% is for the domestic business of our international clients. So the domestic business for domestic customers will probably come down to very, very low levels of 1% or 2% going forward.

Got it. And have we faced any deferred revenue because of the lack of container availability in the current quarter?

So these kind of things happen. Container availability is impacting both ways: one, for raw material coming in, which is a huge challenge because we still get a lot of raw material from the Far East. And that has got an impact on managing the production as supplies sometimes come in late, which results in replanning all our activities in the factory. It is also somewhat impacting the outgoing material. For example, there was a lot of pileup in December and goods were getting stuck at the ports and not going. So some of those revenues also spill over into January. So we do have those situations. I think we will have to just deal with it as we go forward till the container issues sorts itself out. It may take several months before that happens. We are just dealing with it.

So would you like to quantify any loss in revenues for the current quarter?

I think -- I wouldn't like to quantify it because all these things get aligned between quarters. So what gets lost comes back from the previous quarter and stuff like that. So my assessment is that this alignment will just shift at best some amount of revenue from Q-to-Q, that's about it. But overall, if you look at an annual performance, it will barely have a reflection of some of these issues.

So I was having a look at your annual report, and Asia contributes around 20-odd percent of revenue. So which other countries apart from India are important for Gokaldas?

In Asia or globally you're saying?

In Asia.

In Asia, we still supply a lot to China. We supply to the other -- we supply to Japan. And then several other countries are much smaller in terms of their market share. So our biggest market continues to be U.S. followed by Europe. U.S. is almost even 70-odd percent of our exports. Then Europe comes in at about 10%, 12%. And all other countries are smaller in terms of volumes.

The next question is from the line of Kush Gangar from Care PMS.

My first question was on our order book visibility. So generally, for how many months do you have order book?

Okay. So we get a guidance from our customer for 1 year and firm order book for 1 quarter ahead and maybe somewhat for 2 quarters ahead. So 50% order book for 2 quarters ahead. So as of now, I have my Q1 order book in place and some bit of Q2 orders are already flowing in. All of my Q2 orders will be fully in place by middle of my Q1. So that's how our order bookings go. That's because we are in the fashion market and the customers firm up the final product only a quarter before they want delivery. And that's when the firm order is placed on us, with pricing, raw material content, et cetera, whereas the guidance will work for the whole calendar year, which is provided at the start of the year.

Sure, sure. Got it. And if you can just share some flavor on new customer additions that have happened or that you are foreseeing new inquiries? And what is the contribution of customers added over the last 2, 3 years since you took over? So just some flavor on that.

Okay. So during the pandemic, most people are not traveling. The international customers are unable to come to India for audits of our factories and our capabilities. Also, since volumes across the globe are running lower than pre-pandemic level, there is a reluctance in customers to onboard new suppliers as their existing suppliers are themselves more than adequate to cater to their needs. Having said that, Gokaldas has been fortunate, and thanks to our ability to engage with customers and some of the early engagements that we were having, we are having active dialogue with quite a few of our new customers, which we hope that once travel gets restored, we should start seeing some incremental volumes. We may start doing some pilots with 2 new customers, most likely from Q1 onwards based on current engagement. So at the moment, that is where we are. As far as new customers' revenue share, new customers who came in, in the last 2 years, their revenue share currently is about 20% or a little higher than that.

Okay. Okay. Okay. Got it. And -- so you mentioned about your medium-term vision where you want to grow upwards of 15% CAGR. So what would drive that growth? So if you can just share or bifurcate in terms of, say, your expected industry growth, you -- your ability to gain market share, and third, new customer contribution, so that would give an idea of how the growth would come in?

Okay. So industry growth in this space will not be high because the industry growth will depend on what is the end user growth in garment sales, which will be globally probably 2% to 3%, right? But then, for people like us, we tend to grow gaining market share from other operators or other suppliers. And we will be able to maintain this space based on our consistency in delivery and product capability. So we hope to keep this trend. We will grow with our existing customers. Most of our existing customers are large, solid companies with a global footprint and an ability to expand their business. We work with some of the finest brands, and we hope that we will be able to grow into them, taking a larger share of their supply base. That's one item. We have also engaged with new customers in the last 2 to 3 years. So those customers, where our market share currently is low, is also where we will have disproportionate growth and try to gain market share with them. So overall, given the customer diversity that we have, we should be able to deliver this growth without too much of an issue.

The next question is from the line of Pathik Gandotra from Dron Capital.

I had -- I just wanted you to clarify one thing that this whole incentive thing of RoDTEP we've seen, that with MEIS also, it just impacts a few quarters, right, because you've taken a hit of 5% on your MEIS and your margins are back to levels which are above what was margins with MEIS, right?

So that is correct. So we took a hit of 4%, and then we got back to those levels. So it does take some time before we are able to integrate the new incentive regime into our system and continue business going forward. What happens is, since we are booking orders well in advance, say, a quarter or 2 ahead, we will not be able to factor any of that immediately. Those orders are booked. There is no scope for price change. The new -- if the new incentive regime, say, envisages a lower incentive, then we will have to go back to the customer, have a negotiation with them and it does take a couple of quarters before we will be able to push it all through as there is a reluctance from the customer as well initially. And these discussions take time. But then in a couple of quarters going ahead, we should be able to absorb. It all depends on the percentage change that one talks about that how fast one is able to absorb all of this.

I understand that. The point -- I was not looking at inter-quarter kind of margins. I'm saying that when you are saying that your system -- your business can inherently deliver an EBITDA of 150, 200 basis points more than what it is right now, does it really depend upon incentives from a longer-term perspective? Or it is...

No, answer is no. In the longer term perspective, the answer is no. Short-term, it may get pushed here or there. But longer-term perspective, no.

Yes, that is because there is a huge demand shift happening from China [Technical Difficulty] which will happen going forward. And the demand is -- yes.

That is correct. That is correct. So demand shifts, our ability to go after better price, better margin products, et cetera, all of these will have a role to play in our ability to -- not just the market.

My second question is, does the product mix influence your margin, which means if you make more suits and less of casuals, will the margin -- first of all, what's your ideal product mix? What was -- in pre-COVID levels, what was your -- what's so-called high-value products percentage? And how has it come down now? And how will it change going forward? And does that really influence margin because you're in a conversion business? Eventually 50 basis points, 100 base points here and there is okay, but does it really influence margin?

Yes. It influence margin somewhat. So for example, our pre-COVID levels, our casual wear and the lower value garment, so to speak, was about 50%, 60% -- 50%. Now it's gone up further. But the point is, yes, the margins depend on the product mix, I agree. That product mix also is a function of seasonality. So outerwear gets produced in certain seasons and gets consumed in the winter and autumn. So to that extent, there is a certain fixed allocation of product mix, which we can't change. But high fashion will yield better margins for us for now, that's not as much prevalent in our order book simply because of the end-user demand. If they go up, then we will tend to take more of those businesses as well.

So your margin, when you're saying you can earn 200 basis points more, it predicates the fact that your product mix will return to normal, which is a mix of formal, high fashion, and all the things, right? That's what it means.

It predicates that and it also predicates further improvements in manufacturing efficiencies as well.

So Siva, we're talking about just 2 percentage points. So how much does the product mix actually influence? If you have a bad product mix -- this is a bad product mix right now, right? What do you have right now?

It can influence a 1% kind of -- from a product mix perspective. And the other 1% order will come from continued improvement in our production.

Okay. My third question -- my final question was that this whole man-made fiber thing. Are you looking at that as an opportunity? Apart from your normal growth, are you looking at that in the future, now or later?

So definitely, all these are under considerations. If an opportunity presents itself, we definitely give it a strong look. And we'll consider such opportunities. We are evaluating several of those opportunities at this moment. It all depends on the attractiveness, the immediacy of the demand. The market, I believe, will turn around very soon in a couple of quarters when most of this COVID will be behind us, and customers will come back, engaging in future-looking projects and products. So timing-wise, we are not too far away from some of those discussions. And if there is an opportunity, definitely, we will be interested.

The next question is from the line of V.P. Rajesh from Banyan Capital.

My first question was just trying to understand the impact on the revenues because of the stopping of domestic supplies. So you are down 17% year-over-year. So if you can just segregate how much was attributable to that?

So exports were down 11%. Domestic was down 35%. From an absolute revenue perspective, we were -- for domestic business, we reduced it by about INR 30 crores.

Okay. And in terms of your -- you would see this going back up, right? This would be temporary as well, given the situation in...

On this revenue, we would try to fill with exports going forward, absolutely.

And that's because they are higher-margin or the credit terms are better?

Yes, they are high margin and less risk.

Okay. And if you can just also talk about what is your customer concentration now? Has it changed compared to last quarter?

So quarter-on-quarter, there won't be much of a change from a customer concentration standpoint. Our top 5 customers contribute to about 72% to 73% or maybe even 75% of revenue. That has been the case for some time now. At this point in time, with the pandemic effects not fully gone, I'm not so particularly bothered about changing the mix as long as the top 5 customers are financially strong and are able to sustain themselves in the markets. So when all-round growth starts happening in the western market, then we will go back to track of diversifying our customer base by expanding with new customers. Anyway, our new customer growth is exceeding or increasing faster than the existing customers. So over a period of time, the concentration is going to come down. The pace at which it will happen will only accelerate.

And my last question is, if Europe is giving preference to Bangladesh, what is the reason why we are not putting up a factory in Bangladesh and supplying that market through that route?

So that's not out of the realm of possibility. In fact, we were even contemplating at 1 stage pre-pandemic about some of those. And then we put it on hold till more clarity emerges in this space. So we will take a call as we go forward on how these things pan out. We will also have to see how long Bangladesh will continue to enjoy a preferential supplies to Europe as their FDA will also come up for review in a year or 2. So all of that will have to be factored in going forward before we take a decision. And along with Bangladesh there may be several other countries also which may be of interest. So we are not averse to looking at any options, but at the moment, we are not doing anything till the whole market and everything comes out of pandemic completely.

Understood. And if I may just slip in a last one.

Sorry to interrupt Mr. Rajesh, may we request that you return to the question queue?

Sure. Sure.

The next question is from the line of Bajrang Bafna from Sunidhi Securities.

Congrats, sir, for good numbers. I'm sorry, I've joined a bit late, so if my question is repetitive. But if we try to understand more from a structural point of view the sector, the modes are pretty much clear that a lot of movement is happening from China to other countries. But if we try to compare India vis-à-vis, let's say, Bangladesh and Vietnam, sir, what sort of changes that perhaps we need to become more competitive against these countries because if I understand it rightly, the duty differential between those countries and India is around 9.5%. And that is where, clearly, we were getting earlier now, which has been reduced to 5%. So if you could throw some light that what sort of changes that perhaps this industry needs to become more competitive and as those countries will be really helpful, sir.

So clearly, they enjoy free trade agreement with some markets, which give them preferential access. So they enjoy a clear 10-odd percent price advantage going to Europe, which really makes them far more competitive than us. Bangladesh enjoys a lower labor cost than we do, while Vietnam enjoys the higher labor cost than we do. The labor working hours are longer, the labor discipline in -- particularly in Vietnam and Cambodia are much higher. So their productivity is slightly higher than that of India. So there are some of those structural advantage, which are in favor of Bangladesh, some structural advantage, which are in favor of Vietnam. Vietnam has one additional structural advantage, which is a big advantage, which is that the entire MMF ecosystem, which is based out of China, can supply the raw material to Vietnam at a very short notice or at a very short lead time. So the time taken for goods to move from China to Vietnam is few days as opposed to China to India takes 2 weeks. So that adds to the lead time for manufacturing for MMF based products since the entire backward integrated businesses are all there. So those kind of products will always be produced or would still be produced from Vietnam, Cambodia, China, et cetera, though China is become be more expensive, so Vietnam and Cambodia, and maybe to a smaller extent low all. Whereas Bangladesh will continue to produce a lot of commodity products based on free trade agreement related benefits as well as lower cost of labor. India will tend to take advantage of its cotton value chain, which is what it's doing, producing a little higher fashion-related garments where we can enjoy our margins. We are also trying to compete with Vietnam and China by taking some products which were either 2 being made there by getting even the raw materials sourced out of India. So the raw material value chain also is being strengthened in India as we speak, so that we are able to take on products which are being made there out here. We ourselves have engaged with a lot of our customers and shifted our raw material base to India. So that is an ongoing activity, which will help India compete well with them. Remember that India enjoys the labor cost benefit vis-à-vis Vietnam at least.

Mr. Bafna are you done with your questions. Hello? As there is not response from the current participant, we will move on to the next. That is from the line of Pratik from Nippon Life Insurance.

Sorry, just 1 clarification to my earlier question. I didn't understand, sir. Keeping INR 20 crores of net interest cost on INR 150 crores of debt, is there some one-offs? Or how is it? Just trying to understand the breakup, if you can help me with that?

So you have to net up interest income, which is reflected separately in the above the line. So net interest cost, net up interest income and Ind AS interest is only INR 14 crores. Remember, INR 150 crores net debt what you look at it is as on a particular date. It always depends upon the daily average and the utilization, the actual cost of INR 14 crores is reflected.

The next question is from the line of V.P. Rajesh from Banyan Capital.

Yes. Actually my question has been answered. Thank you.

Okay.

The next question is from the line of Jay Daniel from Entropy Advisors.

Yes, sir, I wanted to know if there's any problem with the H&M customer. I mean, there were some stress earlier. So has that been sorted out? I mean, how are things there?

No. I think we have a relationship with the customer. So those are all okay.

Okay. And I had some bookkeeping questions. I mean, on the margin side, a large part of the increase is because of Ind AS 116. And at the same time, you have taken a hit on MEIS. So has the core operating margins improve?

No. So...

I'm not able to understand on the Ind AS-related question, what you're asking about...

No. Operating margins, your lease charges earlier, if I were to make a comparison with earlier years, lease charges were above the line. Now it gets added to depreciation and interest cost.

I agree. When we compare it to the previous year, it's on a like-for-like.

That will be one part. And also, the way these lease charges and gets calculated in depreciation, et cetera. So some of our leased charges are still held at rent expense. It depends on the lease terms that we have. So if we don't have a long-term lease or if the lease is continuing on a year-on-year basis, then those costs are coming up on the rent side as of now also. So not all of it is coming down in the finance costs. Some of it is coming in the finance costs. In Q2 -- in Q3, some of those got also reclassified into the rental expense. So it has moved up. So overall, it doesn't make a much -- make any difference at the PAT level all of these. On the contrary, there may be an additional hit because currently, our lease finance costs are actually in excess of the rent cost that we are paying. That's as of now.

As of now Ind AS requires to certain treatment and I have charged up little INR 4 crores extra in the profitability as of 9 months. So about INR 10.5 crores, whatever you see is after taking additional hit of INR 4 crores on account of deductions. That is part of it.

That does change from year-to-year, depending on how it gets classified.

Okay. Okay. And your term loan is 0, nil as of now, right?

This quarter, we have drawn about INR 16 crores of the INR 40 crores term loan sanction. This is -- will be utilized for the CapEx, is what we are intending to do.

The next question is from the line of Chintan Sheth from Sameeksha Capital.

Just a bookkeeping one on the CapEx spend for the 9 months this year, if you could help me with that?

About INR 17 crores.

INR 17 crores. Is it mostly related to replacement cost -- replacement CapEx? And what are the intent that you spend in the fourth quarter?

Yes. Fourth quarter, some of them may get capitalized -- around INR 6 crores to INR 7 crores will get capitalized.

Okay. And targeted working capital cycle, if I look at your presentation, we are at around 82 days as of...

We are at around 75 days.

75 days, over a medium term. Right. Okay.

The next question is from the line of Moni Segal, an Investor.

Just wanted to, again -- once again, check. So we are at about $200 million of turnover right now. When do we think we'll reach $0.5 billion say, to start with? And secondly, are we investing in innovation or R&D as of now? Because I think that would be necessary to, say, change processes to survive in the environment going forward. So any thoughts on that?

Okay. So $0.5 billion translates to about, what, INR 3,750 crores. We -- I think if we are being pretty aggressive, we can -- we should be looking at FY '27, '28 or thereabouts. If we continue growing at a certain aggressive pace. If this is assuming all organic, if one does something inorganic or the backward integration, some additional stuff, then one can see if we can accelerate this to a faster pace. All these would depend on what are some of the strategic decisions that we take going forward. This is a bit out there in terms of a target. But then that's the broad outline, I can give as far as $0.5 billion is concerned. What was your second question?

Investment in innovation or R&D, where going forward, you would want to change processes or make them more efficient. What is your take on that for this industry?

There are 2 types of innovation that we are currently working on. One is, of course, being able to produce new products, which we were not either to making. So very high end puffer jackets and stuff like that, we're now making, where we are excluding insulation into the jackets and stuff like that. So more like complex outer wear products meant for different services and stuff like that. So that's 1 product-related innovation. The other one, of course, is continuous improvement, but there also a lot of process innovation will happen. We are digitizing our manufacturing process. So we're continuously monitoring our factory operations at all stages, right from cutting to packing and manufacturing at every stage, and trying to optimize them, trying to track control over all the parts and pieces to minimize wastage. These areas will yield sustainable advantage in terms of production efficiency and wastage minimization. Our industrial engineers are working on it. And these process innovations will set -- will allow us to become benchmark setting operators across the manufacturing world, and that's another area that we are focused on.

Sir, also one more thing. And a lot of global corporates are now focusing a lot on ESG framework. So from that perspective, are we looking to become more and more compliant and add to that as something which we want to showcase to our buyers?

Yes, of course, we are doing a lot of that. So in some of our units, we have installed solar power. We have gone 0 liquid discharge for our laundry. So we are recycling all of the water and safely disposing the hazardous chemicals. All of these are -- have been incorporated by us. And we are continuously adopting sustainability initiatives in our factory. We are required to do this in order to also compete for more high-quality business as most of our customers are also committed to do this across their supply chain. And people like us who are investing in some of the ESG initiatives will come out ahead in terms of being preferred suppliers. Other social compliance-related areas like having crush ambulance, inner doctors, to other infrastructure in factories, they're all there anyway. In the environment sustainability factors, most of the pieces are in place already, and further investments are going on in order to make our factories as green as possible.

Sir, 1 final question. Anything on the inorganic side on the table or we're looking at?

Not at the moment. We want to see the post-pandemic situation, the situation come completely out of it before we commit anything from an inorganic standpoint.

The next question is from the line of Kriti Gangotra from Dron Capital.

Siva, one of my questions got interrupted. I was asking you about the man-made fiber environment. Now the government has announced in principle a PLI scheme for the manmade fiber ecosystem, including garments. So what do you think about that? And would you be interested if it's in a manner which is kind of palatable to the industry at large?

Of course. So the PLI scheme is work in progress with the government. And if -- but we know that the PLI scheme is for investments in the man-made fiber-based apparel space. And obviously, with our customer connects and the product experience, we do produce man-made fiber-based garments and we would definitely be interested in taking advantage of the PLI scheme as and when the details are spelled out and the details are very conducive for business investments. We will be interested in, not just looking at it, but also acting on it.

So the point is the whole growth paradigm that you discuss going forward, exclude this whole piece right?

See as of now, we have not factored all these things in because these are additional, and it will depend on the exact nuances which come out. Our growth trajectory for now excludes any of such initiatives.

The next question is from the line of Bajrang Bafna from Sunidhi Securities.

Sir, my second question was if we try to understand what is basically apart from the cost structure, which is moving up in China, and that is leading to some sort of opportunities for markets like India in the value-added products? Is there anything called now we are hearing this China Plus One strategy that has come up after the pandemic. So how this particular strategy is going to impact the overall textile industry from an Indian par lens? If you could throw some more light will be really helpful, sir?

So cost of labor in China is going up. Availability of labor in China is challenged as their population shrinks or working-age population shrinks. They do tend to have a strategic need to focus on higher value-added products like engineering or services business rather than labor-intensive manufacturing, given their demographics change as well as economic aspirations of the country. So all of this means that in the textile value chain, the most labor-intensive piece, which is the apparel manufacturing will move out of China, which is steadily moving out of China into other countries. Now that's where China Plus One comes, where the back end manufacturing, fabric, fiber, your trims, et cetera, yet still produced in China because those are all capital extensive, large capacities exist. And they do have economies of scale there. So they will get continued to be produced in China with the apparel conversion happening in other countries. Now when you look at it from that standpoint, you would like to minimize the travel time of the raw material and the finished goods. And that's where a Vietnam or Cambodia comes into play because of proximity, and that's where some of those productions initially are destined to. And that's why those countries are growing faster in terms of taking business off China. However, based on skill sets available in other countries like India, Indonesia, et cetera, we have also been able to take some share out of China based on these movements. Post U.S. action on China, where additional sanctions have been imposed on China, the pace of things moving out of China will only accelerate going forward. And it's not 1 country or maybe not 2 countries it will be able to absorb what China shares. And that's where an opportunity exists for other countries to participate if they are capable of. And the way I would look at it is whether a country is able to capitalize on it or not, I'm not so sure or it doesn't really matter. What really matters is whether the individual players in the country are able to take advantage...

Yes, I was coming to that only, sir. I was coming to that only.

Yes. So people like us who have the capability, may be able to take advantage regardless of whether India as a whole takes advantage or not.

Yes. So sir, in that sense, like in our company, Gokaldas Exports, how are we seeing now this Xinjiang Province, which was a major exporter to U.S., a lot of sanctions we have heard in other con calls that also putting a lot of pressure and a lot of opportunities are also coming because of that part? So how as a company we are prepared? And what sort of inquiry levels that we are seeing right now? You also pointed out that because of this COVID travel restrictions are there. So we are not able to capitalize it on fully. But broadly, from a perspective, you have just guided 15% kind of growth. But if this immense opportunity which is emerging, and China is currently contributing roughly 65% of the global trade. And you rightly said 1 or 2 countries will not be able to observe this. So why is this 15% guidance? Directionally, we want something -- can't it be bigger than what probably you can think of at this point of time?

Okay. So China share in textile trade or apparel trade is about 35-odd percent. And they -- their share is coming down and their shares will come down more rapidly going forward. Clearly, presents an opportunity for others. When I'm saying our ability to take on additional business, it is based on organically how we are poised to grow and what we do. If the circumstances and the situation are favorable, which, for the moment, they are from a customer and market standpoint, and let's say, post the pandemic running its full course in the next several months, we will see a rebound in most markets. And if that consumption goes and if there is an opportunity for us to grow at a faster pace, trust me, we will not hold back. We will try to capitalize on it and also jump in to take advantage of that growth.

The next question is from the line of Adil Shah, an Individual Investor.

Sir, my first question is, why are gross margins higher in this particular quarter in general, historically?

Okay.

It is primarily due to product mix. Because the casual wears are normally higher in this quarter. I mean our casual wear contribution was 45% versus 27% in normally in Q2, and H1, if you really look at around 25%. So casual wear is comparative with the lower material cost and the higher labor cost, and that is what contributes in this period. If you observe, it is in line with the last year. Last year was 43.2% is what is the average material consumption. Current year, it's around 43.6%.

So overall, casual wear is accretive to our margins, right? That is what you mean to say?

Yes. You know what, at the gross margin level, yes. But overall, one has to be with some stress because the issue is that we need to maximize -- the way I look at the business is we need to maximize our EBITDA in absolute numbers rather than simply the margin percentage. Because if I produce a garment, which has got a higher, let us say, raw material content in it, which becomes some what passthrough but it gives me a better product -- profit realization, I should still do that. So I have shared this example even in the past on certain conference calls. For example, if I'm making a shirt of cotton, and let us say, I am pricing it at INR 200, just for argument sake, of which INR 100 is my fabric price. My gross margin is 50%. And let's say, my net profit on that is INR 20, I get 10%. And let us say, my customer asked me to manufacture a linen shirt, where they are willing to give me INR 300, but the fabric price goes from INR 100 to INR 200, right? And my profit on that, let us say, it's say, about INR 25, so they are willing to pay me INR 305, let's say. My gross margin may look smaller because it will show us INR 100 -- INR 105 on INR 305, it will show us about 33%, whereas it will show 50% in the other case, and my net margin will also look smaller, INR 25 on INR 305 versus INR 20 on INR 200 in the other case. But the reality is that it takes the same amount of effort to manufacture a linen shirt or a cotton shirt, I will take more money, INR 25 per shirt, then the INR 20 shirt. So only looking at margin as a percentage of revenue may not be the best way of maximizing our profit. I can explain to you offline if you are more interested when we connect.

Yes, I got the essence of the argument. So second -- so when you say the -- when you see the higher-margin products, when you see a jacket or winter wear or outerwear, you mean to say that the absolute profit or EBITDA, which you make is higher in those products, although on a percentage basis, it might be lower, right?

Correct. Because of the raw material content in those products may be higher.

But isn't there also the second chapter of how many of those products can you make during a certain period of time, that is a turnover?

Correct. So it is all adjusted for that, I am saying. Yes.

Okay. Fair enough. My second question is on the -- when you see that -- how do you look at woven garmenting versus knitted garmenting? Just wanted to understand because I -- based on my understanding knitted guys make higher margins, but I'm not sure why is that the case? Can you help me understand that?

Okay. So if you look at the entire market, as such, woven and knitted are more or less split half and half. Knitted are usually casuals, and they -- especially knitted casual which is what mainly produced in India, they comprise of garments like your lounge wear or even your T-shirts, round neck, polo neck, et cetera. These are all commodity governments. You can produce in large numbers, pretty high efficiencies, et cetera. And as Sathyamurthy alluded to a little while ago, the material content in those garments will be a lot lower compared to the price. Since the -- notionally, the gross margins and the EBITDA margin will be higher in those products. Whereas in a woven garment, the -- depending on, again, what you produce, the opportunity is large. The opportunity -- the fabric content or the fabric valuation in the garment FOB value will be higher. And that's why the margins -- gross margin, return on sales will look smaller. What one has to look at eventually is what is your return on capital employed. That is what is the right measure I would recommend. And that's what we need to maximize at any stage. Now knitted also runs at very high-efficiency because of large volumes of commodity play that exists there. Whereas the movement you're going to fashion wear, et cetera, you're continuously changing the lines and producing newer gardens. So there is a bit of an optimization that's in between running larger runs at lower margin versus running lower runs at higher margin, what is the most optimal level at which you can maximize your margin. So that's what we tend to do. I hope I answered your question.

Ladies and gentlemen, that's the last question. I now hand the conference over to the management for their closing comments.

So thank you, everybody. And we stay committed to ensure that we are a leading manufacturer sought after by global apparel brands. We are working towards becoming a key player in the Indian market and a desirable supplier or the supplier of choice to our customers. We're working relentlessly to ensure that we grow the business and the profitability of the business, and we are committed to do that. Thank you.

Thank you. Ladies and gentlemen, on behalf of Gokaldas Exports, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.